Posted 203 days ago by hlpr
NYU Professor Oren Bar-Gill visited ACS on Tuesday to consider the debate over legal consumer protection techniques with an eye on behavioral economics. In the first half of his presentation, Bar-Gill identified myriad instances of irrational consumer behavior, and in particular focused on the notion of present bias, or the idea that consumers often make suboptimal financial decisions when terms at the beginning of a contract seem more favorable. Market forces compel sellers to exploit behavioral error, leading to inefficiencies and unprotected consumers. To combat this, the law can: (1) do nothing (2) employ “hard paternalist” strategies or (3) embrace “soft paternalism,” Bar-Gill’s method of choice. The law of hard paternalism bans specific products and practices. For example, the 2009 CARD act prohibited various credit card practices including double-cycle billing, interest rate increases on first-year and existing balances, and excessive late fee charges. Bar-Gill’s concern is that in response to these tactics, credit card companies may simply raise overall interest rates. Soft paternalism, meanwhile, can be enacted in two forms: simple disclosures that reduce complicated considerations to a single intelligible number that consumers can more easily digest, and complete disclosures targeting intermediary organizations, such as cell phone sites that disclose and compare various plans to help frame consumers’ decisions. Soft paternalism, Bar-Gill explained, is also thought to be a more politically palatable legislative technique.
What do you think?
- Should consumer protection advocates favor “hard” techniques that immediately curtail certain corporate practices, or is Bar-Gill’s preferred method of “soft” influence a more effective solution?
- When regulators reduce complicated contracts to a single number for the sake of intelligibility, do consumers necessarily lose valuable information?
- How significant are the political advantages of pursuing soft paternalism over hard paternalism?
Please feel free to discuss and add your own questions in the comments section.
